NFT Lending Volumes Plunge 97% Amid Collateral Collapse

The NFT lending sector, which allows holders to take out loans against their tokens, is currently experiencing a significant decline in volumes and user activity. According to blockchain analytics platform DappRadar, the volumes in this market have dropped by 97% from a peak of around $1 billion in January 2024 to $50 million in May. This downturn is attributed to a collapse in collateral value, which has led to a natural decline in lending activity.

To revitalize the NFT lending sector, DappRadar analyst Sara Gherghelas suggests that new catalysts are needed. One of the key catalysts could be the integration of real-world assets with NFTs, such as tokenized real estate or yield-bearing assets. These could provide more stable and trusted collateral sources, potentially reigniting interest in the sector. Gherghelas also highlights the need for tools that make it easier for NFT holders to borrow against their tokens and the creation of "smart infrastructure" such as undercollateralized loans, credit scores, and artificial intelligence risk matching.

The decline in the NFT lending sector is also reflected in the overall NFT market, which has seen volumes drop by 61% in the first quarter to $1.5 billion compared to $4.1 billion a year ago. This market downturn has led to a significant decrease in borrower activity, which has declined by 90% since January last year, and a 78% reduction in those willing to lend. The average NFT loan size has also decreased from a peak of $22,000 in 2022 to $4,000 in May, indicating that users are either borrowing against lower-value assets or becoming more conservative with leverage.

The average loan duration has also decreased, from an average of roughly 40 days in 2023 to 31 days, which has held steady throughout 2024 and into 2025. This could indicate that loans are being taken more frequently but for shorter periods, perhaps a sign of more tactical liquidity plays. The protocol landscape has also narrowed, with only eight protocols holding any meaningful share. The flip-for-liquidity model that worked during bull markets is not built for a quieter, more risk-averse environment. However, platforms are diversifying, use cases are shifting, and collateral preferences are changing, which could potentially lead to a second wind for the NFT lending sector if the next wave builds on utility, culture, and better design.